From the TUC

Universal Credit: a simpler system funded by benefit cuts?

01 Oct 2010, by in Society & Welfare

Today is the deadline for the Government’s consultation on 21st century welfare – which has been marked, as Richard reports,  by The Times announcing the consultation’s outcome: the Government look set to introduce a ‘Universal Credit’, a single working-age benefit (which will incorporate a wide range of existing benefit payments such as JSA, Employment and Support Allowance, Housing Benefit and Income Support) that will be paid to claimants out of work, and then tapered off at a rate of 65p (or possibly 60p) in the pound as they move into jobs.

The TUC’s response to the consultation is here: broadly, we welcome several of the principles behind the approach (and disagree strongly with others), but have concerns about what the practical realities of this system will mean.  Social security is an area where the devil really is in the detail: implementation of the Universal Credit could in practice lead to some of the most regressive changes in the benefits system for decades.

The consultation document makes several points that we welcome. The Government’s ambition to ensure that all benefit claimants who move into jobs are better off financially is laudable. While recent years have seen significant improvements in the rewards of work, including the introduction of the National Minimum Wage, Tax Credits and the Better Off In Work Guarantee, the complexity of the social security system, combined with real costs of moving into jobs, can mean that some people do still experience only limited financial rewards from work.  It is also the case that the benefit system should do more to support claimants with the insecurity of moving from benefits into low-paid temporary employment – a problem that a Universal Credit system, where in and out of work benefits are part of the same claim and are responsive to regular changes in earnings, could have a good chance of achieving.

But there are many areas where we disagree with the Government’s analysis. A key problem with the DWP’s position is the lack of recognition of how we got here – complexity is a result of the varied realities of different families’ lives, and of the need to contain costs in social security expenditure.  Will it really be possible to introduce a universal taper  (particularly in the current fiscal climate) where there are no losers? Simplification may therefore be a proxy for cuts – a taper rate of 65p in the pound may be more generous than the current rate for some benefits, but with Tax Credits currently tapered off at 39p in the pound, the withdrawal rate for working families who get these benefits will increase significantly – and their incomes will therefore fall. In addition, the document makes no mention at all of how costs such as childcare and housing costs will be met – reducing the value of these entitlements but then tapering them off at a lower rate will still be a cut for many.

Evidence of the Government’s approach to welfare to date also suggests that this change will be a far from comprehensively progressive measure. While 21st century welfare aspires to increase the in-work incomes of people moving from benefits into jobs, many specific measures that have actually been announced by the Government to date move towards a more complex and less generous social security system. Specific examples include the introduction of a £2,500 disregard for in-year income falls for the calculation of Tax Credits (which will make the system less responsive to changes in households’ circumstances), cuts in Housing Benefit for working families (which will reduce their in-work incomes) and an increase in the taper rate for Tax Credits from 39 per cent to 41 per cent, which will increase marginal deduction rates and reduce the incomes of working families.

And overall, we are far from convinced that the primary problem preventing people from moving from benefits into work is poor financial incentives – the most significant issue by far is the lack of jobs: across the economy, there are currently only 467,000 jobs available, with the most recent data showing a quarterly fall in the vacancy level.   Vacancies remain around 160,000 below their pre-recession peak, the ratio of jobs to unemployed people is 1:5.1 and there are far lower vacancy rates in some areas of the country. The economic reality is that unemployment is a result of poor demand for labour, not failures of the welfare system. Government would do well recognise the importance of developing effective active labour market policies, as well as simplifying welfare.

The consultation document also contains a number of extremely concerning proposals including permanent cuts in benefits for claimants who do not comply with the Jobseeker’s regime, localised benefit rates and in-work conditionality (cutting benefits for those who are in-work but are unable to increase their hours). The TUC would be strongly opposed to all of these measures – both on grounds of fairness and their ineffectivness at helping people move into work.

So, today’s suggestion that the Government has made a topline committment to benefit simplification is welcome. But it also seems extremely likely that these reforms mean we end up with a far harsher, and for many less generous, social security regime.

6 Responses to Universal Credit: a simpler system funded by benefit cuts?

  1. Tweets that mention Universal Credit: a simpler system funded by benefit cuts? | ToUChstone blog: A public policy blog from the TUC —
    Oct 1st 2010, 11:20 pm

    […] This post was mentioned on Twitter by ToUChstone blog, Brad Hanshaw. Brad Hanshaw said: Universal Credit: a simpler system funded by benefit cuts …: Today is the deadline for the Government's consulta… […]

  2. J Midgley
    Oct 2nd 2010, 11:03 am

    Still the MSM have completely failed to recognise the truth behind the welfare reforms of IDS. They are all about introducing a single means tested benefit i.e. the abolition of contributory benefits. The idea is to punish particularly the long terms and most seriously disabled who paid their National Insurance contributions and those who paid off their mortgages and saved. These people will be entirely removed from the benefits system. There NI contributions will count for nothing. They will have their savings and homes taken by the government. They will be made destitute. The reforms will punish the responsible and reward the feckless. Its all about reinforcing welfare dependency and hurting the most vunerable in society. The propaganda about reducing the marginal tax rates by a few pence in the pound is simply that – propaganda.

    IDS’s motivation can be gleaned from “Dynamic Benefits” the Centre for Social Justice’s report where he notes that those with savings will have deemed interest on savings of 21% per annum. They will have to live on this imaginary income when the very modest benefit payout on their NI contributions is removed (IB claimants receive about 5p for every pound the treasury receives in NI contributions, amounting to little more than 1/7th average income down from 53% in the 1970s).

    The net result is he will generate a super nanny state with reliance on the tax payer with its much higher benefit rates and access to social care that this entails. The costs involved are staggering. As many carers are forced to walk out on their charges the burden on the local purse will massively increase.

    IDS’s welfare reforms are doomed to achieve the exact opposite of their stated intention. What is more. HE KNOWS IT.

  3. Child Benefit cuts will hit the poor hardest in the long run | Left Foot Forward
    Oct 4th 2010, 1:34 pm

    […] This is more generous than the rate at which some benefits are withdrawn – for example once a household has an earned income Housing Benefit is withdrawn at a rate of 85p in the pound – but far less generous than others, specifically Tax Credits which are currently withdrawn at a rate of 39p in the pound. This will inevitably mean  that many families who currently receive Tax Credits are going to see further significant income cuts. […]

  4. White Paper: what about the children? | ToUChstone blog: A public policy blog from the TUC
    Nov 11th 2010, 6:47 pm

    […] there aren’t enough jobs to go round. Similarly, we’ve gone into the problems facing the Universal Credit, but there is one thing to look out for when the White Paper is published: we’ve heard rumours […]

  5. matthew
    Nov 24th 2010, 2:30 pm

    can anyone tell me is housing benefit stopped if you fail to actively seek employment

  6. Nicola Smith

    Nov 24th 2010, 3:35 pm


    At the moment there are no plans to do this, although the Government are proposing to introduce a 10 per cent cut in Housing Benefit for JSA claimants who have been out of work for 12 months or more.